Page 64 - Albanian law on entrepreuners and companies - text with with commentary

third parties then the privilege loses its economic function, and those persons are personally
held liable for their company obligations.
Under these principle, Article 16 of Law No. 9901 provides that individuals acting on
behalf of a company (Managing Directors, members, shareholders, or directors or members of
Supervisory Boards) are personally and jointly liable for the payment of company obligations
if they abuse with their positions and the legal form of their companies.
Under Article 16 of the Law, the following are the cases of abuse of positions and legal
form of a company:

a) when they abuse the company form for illegal purposes (e.g. establishment of the
so-called ‘phantom’ companies, etc.);
b) when they treat one or more company assets as if they were his/her own assets (e.g.
registering their assets on the name of the company for the purpose of receiving
more favourable legal treatment, such as deduction of expenses for tax purposes,
etc.);
c) when they fail, with respect to the type of activities, to ensure that the company has
sufficient capital at a time when they know or must have known that the company
will not be able to meet its commitments as against third parties (e.g. they do not
take measures for financing the company or, alternatively, closing it, and thus allow
liabilities to third parties to increase and become unpayable).

2. Article 16 provides one of the most important sets of rules that originally were
‘invented’ by jurisprudence in Europe and the US in the context of breach of fiduciary duties.
We refer to ‘piercing the corporate veil’ due to abuse of legal form which is committed by
“company members or shareholders, Managing Directors or members of the Board of
Directors”. In many cases, the abuse is committed by the management of the company as
dominated by a majority member or shareholder able to dominate the management. What
unites these cases is that the management makes fraudulent use of limited liability. There are
particular situations where a third party may be disadvantaged by such a fraudulent use of the
company form.
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A UK example for this imposition of personal liability is Jones v Lipman where the
defendant agreed to sell a house to the plaintiff before the final contract could be concluded
and prices rose. The defendant tried to evade his liability by forming a limited liability
company and selling the house to it. He then argued that the company was not a party to the
contract between the plaintiff and the defendant so that it could not be obliged to convey the
property to the plaintiff. The court held that this arrangement was a fraudulent use of a
company and held the defendant liable.
Likewise, the German Federal Court has used the ‘piercing-the-veil’ device where the
company form was used for fraudulent objectives: for example, when pyramids of single-
member companies were built and transformed continuously for fraudulent objectives, for

93 Jones v. Lipman [1962] 1 All ER 442
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